Economy in spotlight ahead of election

Reported by AAP
Wednesday, January 30, 2013

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Prime Minister Julia Gillard would surely have given some thought to the likely state of the economy when she decided to call a federal election for September 14.

In the 10 days immediately ahead of the poll, an interest rate decision and two key economic data releases will keep the economy in the spotlight.

But the state of the economy is not always as critical as it might seem.

Paul Keating won his election on March 13, 1993, when the economy was still reeling from the recession that hit during his term as Treasurer.

Only two days earlier, the Australian Bureau of Statistics (ABS) reported the unemployment rate had risen to 11.1 per cent from 11.0 per cent and the number of people with jobs had slumped by 67,000 in the previous month.

At the time, the standard variable home loan rate was a whopping 10 per cent.

There is obviously a lot more to an election campaign than a bland recitation of the statistical facts.

But the economy still matters, especially with the opposition scoring highly with voters on economic management.

An Essential Media poll released this week showed that 40 per cent of voters would trust the coalition to deal with another global financial crisis compared with 26 per cent preferring the Labor Party.

And, given Mr Abbott's unrelenting efforts to frame the carbon tax as an economy-wrecker, any hints of economic weakness would be used to bolster his case.

So the economy will be in focus as the election draws closer.

On September 3, the Reserve Bank of Australia's board will hold its monthly monetary policy meeting.

Its benchmark cash rate is currently 3.0 per cent but the futures market has it at either 2.75 or, more likely, 2.5 per cent by election day.

If so, that will be a debating point in Labor's favour.

The following day, a week and a half out from polling day, the ABS will publish the June quarter national accounts.

The headline figure will be the annual change in real gross domestic product (GDP) - economic growth, as it's better known - for the first full year under the carbon tax.

The Reserve Bank of Australia's latest forecasts show gross domestic product, adjusted for inflation, growing by 2.75 per cent over the year to the June quarter, about half a percentage point under the long-run average.

Most economists would be expecting something around that figure as well, with the mining investment boom running out of steam and the high Australian dollar dragging on the rest of the economy.

It would mark a slowdown from the 3.1 per cent pace over the previous year, which ended the day before the carbon tax kicked in, but only a marginal slowdown rather than the disaster envisaged by opponents of the carbon tax.

So, barring a surprise - a very weak or very strong figure - debate over just what the national accounts say about the economy seems likely to turn into an inconclusive arm-wrestle rather than a knock-out blow landed by either side.

A week later, just two days before the election, the ABS will release the August jobs figures.

The trend in employment growth is already weak, about half what's needed to stop unemployment from edging up over time.

And most indicators of job vacancies are heading down, meaning the trend is more likely than not to flatten further.

So it is very likely that the unemployment rate will be higher than the 5.4 per cent recorded in December, although on current trends only by 0.1 or 0.2 points or maybe a tad more.

Even so, given the volatility of the monthly estimates, there's about as much chance they will show a fall in unemployment as a rise between July and August.

So whether the numbers favour the incumbent or the contender is a coin-toss.

On election day, as Mr Keating's success in 1993 demonstrated, the actual state of the economy will probably turn out to be much less important than who can spin the most convincing yarn about it.

17/04/2014 04:56Sydney, Australia. 17 April,2014
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